Business Model BibleCreating Value through Innovation<br />The art and science of innovation<br />
Part 4:<br />Distribution models<br />The art and science of innovation<br />
Our philosophy has been to be fiscally conservative, so we can be operationally aggressive… We're looking for something where we can make something happen: an industry where the competition is asleep, hasn't taken advantage.<br />Wayne Huizenga, Founder of Blockbuster Video<br />
Innovation is the blood of an enterprise. The question is: do we have enough red blood corpuscles?<br />Peter Brabeck-Letmathe, President and CEO, Nestlé SA<br />
Delivering to demand<br /><ul><li>This model involves products and services being brought directly to the people who require them, exactly when and where they are needed.</li></li></ul><li>Delivering to demand<br />Food and beverages<br />Transport<br />Delivers chef prepared, healthy & calorie-controlled meals to people who want to lose weight for a subscription fee across the UK<br />London’s leading minicab company providing 10m trips a year using its fleet of 2000 vehicles to consumers and businesses. Various payment options, from cash on arrival to various account options<br />Business services<br />Media<br />Provides on-demand computing and communication services (e.g. business hosting and content management solutions) to UK businesses<br />HBO On Demand offers feature films, sporting events and entertainment programs to viewers on a pay-per-view basis<br />
Disintermediation<br /><ul><li>Businesses can lessen dependence on intermediaries, discounters or traditional channels and serve directly to their customers.
Internet has significantly enhanced the possibility of this business model, often as a result of high market transparency.</li></li></ul><li>Disintermediation<br />Consumer electronics<br />Consumer goods<br />Introduced a direct-to-consumer sales model in 1992 and was able to leapfrog rival Compaq to become the largest seller of personal computers in the USA within 7 years<br />World’s leading direct seller of beauty and related products, sells through 5 million ‘Avon ladies’ worldwide and, more recently, through its website<br />Supermarket<br />Insurance<br />In 2008 Waitrose Deliver was launched, cutting out (and directly competing with) its previous delivery partner Ocado in parts of the UK where Waitrose stores are present<br />Offers various types of insurance policies straight to end buyers with such deals not available on cost comparison websites<br />
Expert disaggregation<br /><ul><li>An extension of the disintermediation model, expert disaggregation identifies and specialises in a particular part of a service, which is generally bundled as part of a bigger overall offering, and instead sells this separately.</li></li></ul><li>Expert disaggregation<br />Business services<br />Financial services<br />Provides alternative airport lounges throughout the UK and Continental Europe independent to tied airline lounges<br />Independent ATM supplier with over 1,000 machines in operation throughout the UK and full ATM service support programme<br />Automotive<br />Financial services<br />Produces highly profitable automobile components taking margin from the traditional auto industry value chain<br />A financial services disaggregation separating the debit card from the chequing account and offer as a unique service<br />
Multi channel<br /><ul><li>Same product or product class sold through with different distribution channels to different segments of the socio-demographic market, generally using differentiated pricing bands.
Exploits the benefits of distribution channels and adds value for consumers. There is a risk of cannibalisation and lower margins.</li></li></ul><li>Multi channel<br />Food and beverages<br />Retail<br />Employs different sales channels, e.g. vending machines, supermarkets, pubs. Each sales channel has a different price mechanism due to variations in demand<br />Retailer and home delivery wine merchant selling premium wines from small production winemakers. Also uses wine tasting and dinner events and markets through corporate wine clubs<br />Clothing and apparel<br />Leisure<br />Multi-channel retailer of lingerie and adult entertainments targeted at women. Uses mainstream and high street retail locations, markets products online and via catalogues and home parties<br />Offers flights direct to end customers, as package holidays and through travel agents<br />
Sell in, sell out<br /><ul><li>Enhancing competitive positioning through a dual strategy – sell in: establish product dominance in wholesale and retail distribution, then sell out: incentivise retailers to push the product in the market.</li></li></ul><li>Sell-in, sell-out<br />Consumer goods<br />Food and beverages<br />Used by 1 in 3 households in the US, Unilever built a dominant position for the Dove range and then used consumer loyalty and retailers to push the product<br />UK market leader in impulse purchase "hand-held" products. Best-selling ice cream that used its popularity to establish a network of independent vendors to promote and sell the product range<br />Food and beverages<br />Automotive<br />Mineral water that established a strong market position selling in to key markets and then using restaurants to sell out as a premium dining product<br />Used sell-in/sell-out to drive their market entry to the European retail tyre market<br />
White label<br /><ul><li>New generation of the insourcing/ outsourcing model. A supplier packages an existing product or produces new products for another company which then brands and sells as their own.</li></li></ul><li>White label<br />Supermarket<br />Electronics retailers<br />Sainsbury’s was among the original adopters of white label models using suppliers to deliver own-name products and build loyalty while managing cost<br />Maintain a sub-brand for mass-produced generic electronics (DVD, TVs) produced under white labelling production arrangements (e.g. Matsui and Saisho)<br />Booksellers<br />Software developers<br />Used Amazon's website under a white labelling arrangement to enable a successful brand to offer a service without having to invest in creating the technology and infrastructure itself<br />Offers fully managed white label gaming services for blue-chip media brands and integrated gaming solutions for European sports books including Virgin and Yahoo<br />